Navient (student loan) amortization sched. Q

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Cautious_Optimist
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Navient (student loan) amortization sched. Q

Post by Cautious_Optimist » Sat Jun 18, 2016 9:25 am

My current SL repayment plan has 71 months remaining on a balance of approximately $7300. However I have prioritized prepaying them ASAP as I want them out of my life. My plan involves making 4 large lump sum payments of $1200 in addition to continued regular monthly payments ($220) and will pay it off by December 2017. Last month I made the first of these lump sum payments (I specified that it go to pay principal and to continue regular monthly payments) but I see that Navient has yet to adjust my amortization schedule and they still have me paying the $220/month for the next 71 months. Can anyone shed some light on how this will work (i.e., adjusting the amortization schedule)..??

Thanks in advance.

campy2010
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Re: Navient amortization schedule Q

Post by campy2010 » Sat Jun 18, 2016 9:54 am

Your amortization schedule and the 71 month repayment date is a function of your repayment plan, so it shouldn't change by making principal payments. Because you paid early, your next "required" payment is moved into the future. Meaning that you could take a break and not go into default until you reach that future date. But if you do the math, your loan would be repaid earlier than 71 months.

In my experience, Navient's online system does principal payments correctly.

Cautious_Optimist
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Re: Navient amortization schedule Q

Post by Cautious_Optimist » Sat Jun 18, 2016 10:08 am

Thanks for your reply
campy2010 wrote:Your amortization schedule and the 71 month repayment date is a function of your repayment plan, so it shouldn't change by making principal payments.

Why? I now owe them less money and if I were now to pay 220 over 71 months it will exceed what I owe. I've essentially changed the terms of the repayment plan no?

campy2010 wrote:Because you paid early, your next "required" payment is moved into the future. Meaning that you could take a break and not go into default until you reach that future date.


No. I specified the payment not be used early and have since made a regular monthly payment (220) and will continue to do so.

campy2010
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Re: Navient amortization schedule Q

Post by campy2010 » Sat Jun 18, 2016 11:04 am

Cautious_Optimist wrote:Thanks for your reply
campy2010 wrote:Your amortization schedule and the 71 month repayment date is a function of your repayment plan, so it shouldn't change by making principal payments.

Why? I now owe them less money and if I were now to pay 220 over 71 months it will exceed what I owe. I've essentially changed the terms of the repayment plan no?

campy2010 wrote:Because you paid early, your next "required" payment is moved into the future. Meaning that you could take a break and not go into default until you reach that future date.


No. I specified the payment not be used early and have since made a regular monthly payment (220) and will continue to do so.


1. Navient displays the ammortization schedule in which you're required to repay. It isn't the schedule in which you're actually repaying. Why? I assume this is done because they have a legal responsibility to keep their customers informed of the dates by which they would be need to repay before being late or in default. When I was a Navient customer, I kept my own "real-time" ammortization schedule in Excel.

2. Navient moving the repayment date forward is done for a similar reason. The repayment date is the date in which a customer needs to be paid in full according to their ammortization schedule. Moving the date forward in time is Navient acknowledging that after making a $1200 payment you could skip the 5 monthly payments and not be late or in default. This is Navient's legal requirement. You have elected to have your autopay to continue with your monthly payments, despite the extra principal payment. That is fine. It means you'll be done repaying earlier than the 71 months.

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nyknicks4412
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Re: Navient (student loan) amortization sched. Q

Post by nyknicks4412 » Sat Jun 18, 2016 11:39 am

They won't adjust the amortization schedule or change your payoff date just because you made a one-time large payment. Your loan is probably considered paid ahead and if you look it might say something like no payment due. As long as you see that most the extra payment went to principal you're good. They aren't ripping you off.
Last edited by nyknicks4412 on Sat Jun 18, 2016 2:58 pm, edited 1 time in total.

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jimb_fromATL
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Re: Navient (student loan) amortization sched. Q

Post by jimb_fromATL » Sat Jun 18, 2016 12:00 pm

Cautious_Optimist wrote:My current SL repayment plan has 71 months remaining on a balance of approximately $7300. However I have prioritized prepaying them ASAP as I want them out of my life. My plan involves making 4 large lump sum payments of $1200 in addition to continued regular monthly payments ($220) and will pay it off by December 2017.

As others have mentioned, once you pay extra on the balance, the original amortization schedule is no longer in effect. If you have a printout of it, you can look for your current balance to see approximately how far ahead you are in the schedule ... assuming the normal payment.

There's a discrepancy in your data. If you owe $7,300 now and make payments on the 1st, then even at a fairly high rate of about 6.8% the payment of $220 will pay it off in approximately 37 months … not 71 months.

What's your rate?
Is that $7300 balance after making the extra principal payment?

How are you planning to schedule those $1200 extra payments? Interest compounds monthly on the unpaid balance on a daily basis, which averages out to be 1/12 of the yearly rate per month. So you'll save the most interest and time and debt by paying as much extra as you can as soon as you can to reduce that unpaid balance. Not by waiting until you have saved up an extra $1200.

Got more details?

Incidentally, since you do have some spare money, here's something you need to consider:

If you're in a tax bracket a step or two above the bottom and if you are not contributing the maximum allowed to tax-advantaged retirement plans like a 401(k) or IRA, you would probably come out far better in the long run to contribute up to the max to a 401K and any other retirement plan before you pay any extra on the student loans.

My posts in the threads linked below go into more details and math showing how even a relatively short time of postponing or reducing retirement contributions in order to pay off debts faster can often cost anywhere from tens to hundreds of thousands to sometimes millions of dollars out of your potential future retirement income in exchange for saving only a tiny fraction as much interest on the relatively short term debts.

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jimb

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Re: Navient (student loan) amortization sched. Q

Post by Cautious_Optimist » Sat Jun 18, 2016 12:23 pm

Thanks to all for your insight.

jimb_fromATL wrote:What's your rate?
%5.37

jimb_fromATL wrote:Is that $7300 balance after making the extra principal payment?
Yes

jimb_fromATL wrote:How are you planning to schedule those $1200 extra payments?

I'm paid 26 times per year, and thus every six months I get an "extra" check in the month (I budget to live on two checks a month). This just happened in May and will again in Nov. 2016, May 2017, and Nov. 2017.

If I pay 220 x 71 months I pay ~ $15,620
If I pay 220 x 19 months (June 2016 - Dec. 2017) plus 1200 x 3 (Nov, May, Nov) I pay ~ 4,180 + 3,600 = $7,780

jimb_fromATL wrote:If you're in a tax bracket a step or two above the bottom and if you are not contributing the maximum allowed to tax-advantaged retirement plans like a 401(k) or IRA, you would probably come out far better in the long run to contribute up to the max to a 401K and any other retirement plan before you pay any extra on the student loans.

I'm not debating that this is true, but I've been paying these damn loans long enough (I put myself on 20 year repayment plan as I couldn't swing the monthly payment when I was younger) and I just want them out of my life ASAP. I'll then redirect that 220/month to investing/saving.

Thanks again

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jimb_fromATL
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Re: Navient (student loan) amortization sched. Q

Post by jimb_fromATL » Sun Jun 19, 2016 1:41 pm

Cautious_Optimist wrote:... if I pay 220 x 71 months I pay ~ $15,620

From the information you've given, you do not owe anywhere near 71 more months. Here’s why:

Interest is calculated on the unpaid balance for each payment period. Since you’re reducing the balance every month, the proportions of interest and principal change with each payment. The original amortization schedule was based on a fixed number of fixed monthly payments, allowing for the known progressive changes in the balance each month for the original time schedule. Once you made the first extra payment on the principal, the original amortization schedule is no longer correct.

…If I pay 220 x 19 months (June 2016 - Dec. 2017) plus 1200 x 3 (Nov, May, Nov) I pay ~ 4,180 + 3,600 = $7,780…

It’s not quite that simple, either. Amortized loans are compound interest (in reverse) with interest calculated on the unpaid balance for each payment period. Because of the exponential factor of time in calculating compound interest, you cannot just multiply out or divide using monthly payments to get the totals. Instead you need to use much more tedious repetitive manual calculations for each month.

Fortunately, spreadsheets and other software packages and financial calculators have built-in math functions to do the tedious work for you. I’ve made some posts that address how to use the spreadsheet functions. HERE and HERE are two of them.
A lot of my posts also include examples of function calls for PMT, FV, and NPER for debts and investments.

Using those functions, let’s look more closely at the data you’ve given:

    If you owed $7,300 as of the last payment, then assuming 30 days until the next payment the interest for the month will be 7300 x 5.37%/365.25 x 30 days = $32.20. That makes your balance for the next payment on the 1st of the month $7,332.20.

    Solving for the time required at 5.37%, the payment of $220 will pay it off in approximately 36 months. The total paid will be approximately 36.17 x 220 = $7,958 with $626 interest.

    The extra $1200 every 6 months is an average of $200 per month extra. So for an easy estimate, paying $420 per month will pay off a balance of $7332 at 5.37% in 18.2 months. The total paid will be approximately 18.22 x 420 = $7,652 with $319 interest. So you'll save about $306 in interest.

I'm not debating that this is true, but I've been paying these damn loans long enough (I put myself on 20 year repayment plan as I couldn't swing the monthly payment when I was younger) and I just want them out of my life ASAP. I'll then redirect that 220/month to investing/saving.


Still, you might want to consider the potential long term consequences of giving up the exponential growth of investments over the time you’d lose, and the taxes you’d pay prematurely.

If you are paying perhaps 25% federal and 6% state income tax, it will take approximately $290 of your income to pay $90 in taxes and have $200 left to pay down the debt faster. If you were to reduce any tax-deferred retirement accounts by that much, you'd pay about 18.22 x 89.86 = $1,637 in taxes during that time prematurely in order to lock in a savings of $306 in interest on the debt.

If you don’t religiously reinvest the freed-up payments, you can lose a lot of money from your potential future retirement. I’ve never known anybody who actually did it, but even if you have the sticktotivity to reinvest every single freed-up payments, unless you’re effectively already under-contributing to tax-deferred retirement plans, you still lose the opportunity to invest more tax-deferred or tax-advantaged money to catch up later because you’ll be limited by the yearly contribution limits.

As a simple example, if you happened to live in Georgia or some other place where you could defer state taxes for retirement contributions now, you’d be guaranteeing to pay about 317.03 in state income taxes that you’d never pay after retirement. That alone is as much or more than the interest you’ll save on the debt. Plus you’ll lose the compound interest earnings you could have had on that money for the rest of your life.

Here’s a more detailed look at how much it could possibly cost out of your retirement:

    Assuming top tax brackets of 25% federal and 6% state totaling 31.%; debts totaling $7,300 at 5.37% with total payments of $220.00 for P&I for 36 months; a 401(k) plan earning an average APY of 7% for 30 years until retirement and 4% after retirement:

      If you were to postpone contributing $290 per month to the 401(k) and pay the extra $90 taxes, applying the remaining after-tax $200 to pay down the debt will pay it off in 18 months and lock in a savings of $304 interest and 18 months in debt. But that is in exchange for paying an extra $1,629 in taxes over the next 18 months instead of deferring and investing the money where it can earn compound interest for the rest of your life.

      If you resume the contributions to the 401(k) after the 18 month delay but don't reinvest the freed-up payments, then the loss of compound interest and the time and money paid in taxes would cause you to come up short by $40,373 at retirement time.

      If you lived another 30 years you would then lose the $135 per month interest that it could have earned every month without touching the balance. The $40,373 you won't have plus the $48,448 it won't be there to earn would be a total of lifetime loss of $88,821 That is 293 times as much as the interest you saved on the debt.
Just something to think about before reducing any retirement investment opportunities in order to pay off manageable debts too fast.


jimb

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Re: Navient (student loan) amortization sched. Q

Post by Cautious_Optimist » Wed Jun 22, 2016 5:14 pm

jimb - Thank you so much for your very detailed and insightful replies.

jimb_fromATL wrote: From the information you've given, you do not owe anywhere near 71 more months.

I guess I had to see it myself and you are correct. My simulated amortization schedule puts it at about 36 months as well.

EDITED TO ADD: I realized I needed to simulate the amortization schedule BEFORE that first payment to better understand the inaccuracy of the Navient schedule, at which time (May 28, 2016) the balance was ~ $8700, and according to that schedule the debt would have been retired in about 43 months (43 mos * $220).

BUT I still I don't get why the Navient amortization schedule says 69 monthly payments remaining (that's what it actually is not 71) to retire this debt. This inaccurate information is what I was was provided to me (on the website) even before I made that one extra lump sum payment last month, and sad to say I just took their schedule as gospel as I simply learned to accept and budget for a monthly student loan payment lo these years.

jimb_fromATL wrote:Just something to think about before reducing any retirement investment opportunities in order to pay off manageable debts too fast.

You've given me much to think about. Again thanks so much...

mhe

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